jaforlines global 78 forest avenue locust valley, ny 11560 telephone: 516.609.3370 . may 26 th,2011...
TRANSCRIPT
JAForlines Global 78 Forest AvenueLocust Valley, NY 11560Telephone: 516.609.3370www.jaforlines.com
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May 26th,2011
Global Tactical Allocation: The New “Core”
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How We Manage Money
• Tactical: The key to long term success is avoiding large annual losses--we take a long term view but manage the short term (less than one year) tactically
• Diversified: We utilize global asset allocation—three asset classes in one account, no danger of dispersion or overlap
• Benchmark Free: We utilize our own risk guidelines in asset allocation to provide growth and capital preservation
• Exclusive: We work only with a select group of Independent Advisors and Consultants
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JFG has Extensive Investment ExperienceJohn Forlines III, Chairman & Chief Investment OfficerJohn spent 27 years on Wall Street as portfolio manager, investment banker, equities specialist, family office owner and securities lawyer. John spent 16 years at J.P. Morgan as a senior investment banker and business unit leader. He is a graduate of Duke University with honors in English and Economics and Duke University School of Law.
Bob Shea, Vice Chairman and Co-Head of Investment CommitteePrior to joining JAF, Bob was a partner at Goldman Sachs, specializing in cash equity markets. He has extensive institutional trading experience and has built a far-reaching network of contacts in Asia through his Asia Source fund of funds venture.
Jack Mayberry, Senior AdvisorJack has run Core Asset Management since 1986 and has a long track record in managing Global Allocation portfolios. Before joining Core, Jack practiced law at Cravath, Swaine & Moore. He is a member of the bar of the State of New York. Jack received a BA with honors in Greek and Latin from Swarthmore College and earned a JD from Yale Law School.
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G.A.M.E. is a Synthesis of “Best Practices”
Global: The world is “tri-polar” as sector opportunities are global and can be found in the Americas, Euro- land and Asia
Active: Global Macro top-down allocation through ETFs captures returns across assets, regions, countries and sectors. Active indexing is a very efficient and cost effective investment strategy
Macro: Top-down investing captures the most important factors: government intervention in markets; demand drivers shifting from developed to developing countries; the importance of tactical agility during rapid market shifts
Endowment: JFG’s framework is the U.S. large endowment model where clients obtain all three major asset classes: global equities, fixed income, and alternatives in one separately managed brokerage account
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Investment Process Starts with Big PictureP
erce
ived
im
pac
t in
Bill
ions
US
$
Perceived likelihood to occur in the next ten years
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…Then Drills Down to Allocations & Holdings
Derived from analysis of proprietary macro research and 45 financial condition variables. This leads to a number of “big picture” ideas which help us initially rank our asset classes and enable us to focus on long and short term investment themes.
JFG has extensive knowledge of ETFs and we express our views formulated in the idea generation process in sectors, regions, countries, and currencies.
The ETFs that have been selected are then implemented into the models based on our assessment of risk/ reward opportunities and the current market conditions.
Idea Generation ETF Selection Capital Allocation
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Tactical Analysis is the Final Step2010 GTA Portfolio Breakdown by Asset Class
1/1/
2010
1/14
/201
0
1/27
/201
0
2/9/
2010
2/22
/201
0
3/7/
2010
3/20
/201
0
4/2/
2010
4/15
/201
0
4/28
/201
0
5/11
/201
0
5/24
/201
0
6/6/
2010
6/19
/201
0
7/2/
2010
7/15
/201
0
7/28
/201
0
8/10
/201
0
8/23
/201
0
9/5/
2010
9/18
/201
0
10/1
/201
0
10/1
4/20
10
10/2
7/20
10
11/9
/201
0
11/2
2/20
10
12/5
/201
0
12/1
8/20
10
12/3
1/20
100%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Alternatives
International Equity
US Equity
International Fixed and Currency
US Fixed Income
Cash
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Asset PricesAsset Prices
Credit• Capital Availability
• Central Bank Policy• Public/Private Tradeoff
Credit• Capital Availability
• Central Bank Policy• Public/Private Tradeoff
Country/Sector• Economic Activity
• Structural Changes• Policy Decisions
Country/Sector• Economic Activity
• Structural Changes• Policy Decisions
Conditions• Liquidity of Asset
• Scarcity Factor• Earnings Volatility
Conditions• Liquidity of Asset
• Scarcity Factor• Earnings Volatility
Interest RatesInterest Rates Future EarningsFuture Earnings Risk PremiumRisk Premium
Process on One Slide: Starts With Credit Analysis
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The Credit Cycle Impacts Asset Prices
Average Absolute Returns Through the Fed Rate Cycle*(in basis points per month)
Phase 1 Phase 2 Phase 3 Phase 4
Easy Money Raising Rates
Tight Money Raising Rates
Tight Money Cutting Rates
Easy Money Cutting Rates
Investment Grade Bonds** -8 8 108 59
High Yield Bonds *** 12 15 59 91
CRB Raw Industrials 100 9 -123 2
Gold 79 -97 -1 77
Oil 267 8 -59 47
Stocks**** 119 58 86 52*From Jan. 1980**Duration-matched***July 1983, Duration-matched****Source: MSCI
BCA Research 2009
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Ranking Assets By Periodic Re-Valuations is Key
Sources: BlackRock, Morningstar, as of 12/31/10.
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Single Stocks vs. the Sector: Managing Risk
Sources: BlackRock, Morningstar, as of 12/31/09.
Compared to the index, 98% of the index constituents had greater risk, while only 36% had greater return.
Three-Year Risk/Return ProfileDow Jones U.S. Technology Index vs. Index Constituents
Dow Jones U.S. Technology Index Index Constituents
–40.0
–30.0
–20.0
–10.0
0.0
10.0
20.0
30.0
40.0
0.0 20.0 40.0 60.0 80.0 100.0 120.0
Risk (Standard Deviation) %
Thr
ee-Y
ear A
nnua
lized
Ret
urn
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Active Indexing is a Best Practice DevelopmentJFG has extensive knowledge of Exchange Traded Funds
Characteristic ETFs Mutual Funds
Diversification Benefits √ √
Management Fees .30% to .50%* Average Fee is 1.4%
Trading Costs and SOAC’s 10 -15 bps/year Average of 2.5% /year
Intraday Pricing & Liquidity √ X
Transparency √ X
Control over Capital Gains √ X
Short Selling √ X
• Average ETF management fee range in JFG Portfolios holdingsSource:Morningstar and Personal Fund.com
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Risk & Return Management for the Long Haul
Composite pool is models managed at Core & JFG through relevant time periods, gross of fees. See further disclosure on final page.Past performance is no guarantee of future results
Annualized Returns With
Risk Measure
Global Tactical Allocation S&P 500
Returns Standard Dev. Returns Standard Dev.
1 Year 11.39% 11.76 15.65%
17.83
3 Year 4.03% 13.13 2.35%
21.89
5 Year 6.20% 11.09 2.62%
17.87
7 Year 7.56% 10.13 4.46%
15.50 All data as of 3/31/2011
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JFG Comparison to Peer Group of Mutual Funds
+ Does not include a 5.25% sales load ++ Does not include a 5.75% sales load Composite pool is models managed at Core & JFG through relevant time periods, Mutual fund data from Morningstar and fund classes are chosen on basis of B/D availability. See further disclosure on final page.Past performance is no guarantee of future results
Firm 1st Q 2011
Annualized Returns (As of 3/31/2011)
1 Year 3 Year 5 YearJAForlines Global Tactical Allocation 3.84% 11.39% 4.03% 6.20%
GMO Benchmark Free (GBMFX) 1.92% 5.13% 5.81% 6.67%
Blackrock Global Allocation (MDLOX)+ 3.45% 11.83% 3.78% 6.96%American Funds Capital Inc Bldr A (CAIBX) ++ 3.27% 10.98% 0.54 % 4.03%
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The Best Single Argument For Global & Tactical Investing: Japan
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This is Not a Call We Would Need To Make
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DisclosureThe composite returns are prepared in compliance with Global Investment Performance Standards (GIPS). Core Asset Management (Core) and JAForlines Global (JFG) are defined as an independent investment management firms that are not affiliated with any parent organization. Information regarding the firms’ policies and procedures for calculating and reporting performance results is available upon request. The JAForlines Global Tactical Allocation Composite consists of 12-25 exchange traded products (ETPs) that reflect JFG’s global macro view. The ETPs may contain fixed income, equities or derivative contracts, which is reflective of JFG’s multi-asset strategy for this Composite and which trade on the U.S. exchanges. Prior to 2009, the Composite also contained mutual funds where no ETPs were available. The accounts included in the Composite will invest primarily in ETPs in which the constituent companies have market capitalizations similar in size to those found in the S&P 500 Index. However, our composite accounts will differ from its benchmark with holdings concentrated in fewer economic sectors that may be global and will also contain exposure to other asset classes such as fixed income and alternatives. Performance results are calculated on a time weighted total return basis, using trade date accounting and the accrual basis for all income. Performance results are size-weighted based on the beginning period market value. All returns are calculated and reported in U.S. Dollars and are calculated as of calendar month ends. Cash reserves and equivalents are included in performance results. Returns include the reinvestment of all income. No leverage was used. The Composite was created on January 1, 2004. JAForlines Global (JFG) became registered with the SEC as a Registered Investment Advisor on May 15, 2009. The Composite was previously managed under Core Asset Management, where
John Forlines III and Jack Mayberry served as co-principal investment officers over all portfolios. JFG is a spin-off from Core’s institutional business and Mr. Forlines continues to serve as the co-principal investment officer over the accounts in the Composite, with Mr. Mayberry as Senior Advisor. In addition Mr. Forlines remains a Senior Advisor at Core. Seed accounts were opened on 1/1/09 to prevent a break in the Series performance and allow for a linking of future performance as the organizational change was in process. There has been no break in performance and JFG believes it has met the GIPS requirements for portability. Returns are calculated gross of fees. Returns include the deduction of additional custodian, ETF management fees and trading costs but do not include any additional fees charged by an investment advisor for other investment advisory services. Beginning in April 2009, the composite’s minimum account size is $100,000. Accounts are included in each composite after the first full month of performance to the present or to the cessation of the client relationship with the firm. Investment results are time weighted performance calculations representing total return. An Investment in JFG’s Global Tactical Portfolio, or any other investment or investment strategy involves risk, including the loss of principal; and there is no guarantee that investment in JFG’s Global Tactical Allocation Portfolio, or any other investment strategy will be profitable for a client’s or prospective client’s portfolio. Investments in the JFG’s Global Tactical Portfolio, or any other investment or investment strategy, are not deposits of a bank, savings and loan or credit union; are not issued by, guaranteed by, or obligations of a bank, savings and loan, or credit union; and are not insured or guaranteed by the FDIC, SIPC, NCUSIF or any other agency. Past performance is not indicative of future results.
